CLIENT QUESTION:

I am looking for a US/UK tax advisor to file my husband and I’s personal income tax accounts for 2017.

A little background information - and some questions!

We are both UK citizens. I am employed (to April 2018) and PAYE. My husband is self-employed and has already filed his UK tax return for 2016-2017. We were approved to immigrate to the USA under EB1A in December 2017, and entered the USA to complete processing (and to house hunt) on 20 December 2017. We stayed for two weeks, returning to the UK (via Mexico) on 10 January 2018.

We plan to immigrate permanently (to California) on 3 May 2018.

My questions then, are:

1. Should we file personal income tax assessments for 2017 in the USA (or wait until April 2019?)2. Can you file these on our behalf; and3. How much do you charge?

I do not expect that we will have any tax to pay but I would like to be careful about being on the right side of the law, green card-wise.

— Bambridge Accountants Client

OUR ANSWER:

2017 tax year

You will not have to file any US returns for the 2017 tax year. You should file US taxes in April 2019 for all worldwide income earned in 2018. This includes any income you earned January-April 2018 while you lived in the UK. You will be able to claim a tax credit for the amount of tax you paid on this 2018 UK income on your US return to avoid be taxed twice.

Future income

For any UK income in future years (i.e. interest, dividends, or capital gains and rental income from real estate), you must pay UK tax. Again, this income should be reported on your US return and then you may take the credit for the amount of tax paid.

P85

Be sure to fill out form P85 and send it to HMRC before you depart the UK. This will let them know that you are leaving the country. Additionally do not forget to include your income from 5 April 2018-3 May 2018, as it must be include on your 2018-2019 return.

Extension

When filing your US return in 2019, you automatically get a 2 month extension until 15 June to allow time to gather any UK tax documents you may need. If this is not enough time, make sure to file for an another extension before 15 June. This will give you until 15 October to submit your US tax return.

California

In California, you will owe state tax in addition to federal (US) tax. This tax is quite high, with the maximum rate being 12.3% for the top income bracket. However, you may deduct this tax payment from your gross income on your federal return.

Itemised deductions

-Decide if you want to itemize your deductions (figure out which expenses during the year are deductible from gross income) or take the standard deduction (a flat, simple reduction of GI based on filing status). Be sure to do this at both the federal and state levels and figure out which option will leave you with the lowest adjusted gross income (AGI).

Following President Trump’s signing of the Federal tax bill on 22nd December 2017, the effective lifetime Estate and Gift Tax exemption for US citizens and residents (domiciles) has been increased from $5.49m in 2017 to approximately $11.2m per individual (approaching $22.4m for US citizens or US domiciled married couples) with effect from 1st January 2018. The inflation adjustment factor has not yet finalised.

If you own a UK limited company and move to the US as a corporation, you may seem inundated by all the complex tax laws to follow and forms to fill out. Here is a brief guide that should help clarify the purpose of these forms and how to properly complete them.